IBM Falls on Q1 Earnings Beat, Revenue Miss

The FINANCIAL -- IBM on April 18 announced first-quarter earnings results.

"In the first quarter, both the IBM Cloud and our cognitive solutions again grew strongly, which fueled robust performance in our strategic imperatives," said Ginni Rometty, IBM chairman, president and chief executive officer. "In addition, we are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead."

"We continued to make investments in the first quarter to expand our cognitive and cloud platform and we increased our research and development spending," said Martin Schroeter, IBM senior vice president and chief financial officer. "At the same time we returned more than $2.6 billion to shareholders through dividends and gross share repurchases."

The company continues to expect operating (non-GAAP) diluted earnings per share of at least $13.80 and GAAP diluted earnings per share of at least $11.95. Operating (non-GAAP) diluted earnings per share exclude $1.85 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges. IBM continues to expect free cash flow to be relatively flat year to year.

Cash Flow and Balance Sheet

In the first quarter, the company generated net cash from operating activities of $4.0 billion, or $1.9 billion excluding Global Financing receivables. IBM’s free cash flow was $1.1 billion, down year to year consistent with the amount of the Japan tax refund received in the first quarter of 2016. IBM returned $1.3 billion in dividends and $1.3 billion of gross share repurchases to shareholders. At the end of March 2017, IBM had $3.8 billion remaining in the current share repurchase authorization.

IBM ended the first quarter of 2017 with $10.7 billion of cash on hand. Debt, including Global Financing debt of $28.5 billion, totaled $42.8 billion. Core (non-Global Financing) debt totaled $14.3 billion. The balance sheet remains strong and is well positioned to support the business over the long term, according to IBM.

For the first quarter, IBM’s ongoing effective GAAP tax rate was approximately 12 percent. The ongoing effective operating (non-GAAP) tax rate was approximately 15 percent, which is within the expected range of 15 percent plus or minus 3 points provided earlier this year. IBM’s reported tax rates include the effect from a discrete tax benefit disclosed earlier this year.